Withdrawing from the global village

The world's elites don't want to admit it. But the kind of global village that they have insisted on building--a vast free-trade paradise run by an ever more complex and opaque system of logistics and finance--isn't working, not even for many of them. The cost of maintaining this brittle, complex system and keeping the huge imbalances it creates at bay is becoming dizzyingly expensive.

The consequences of those imbalances include heavily indebted countries such as Greece being driven into penury by the financial masters of Europe desperate to keep the Eurozone intact. They include an unsustainable system whereby the United States borrows from China to maintain U.S. consumption of cheap Chinese goods. (Most of that money has been recycled through mortgages on homes which were then used like ATMs in the past decade via waves of refinancing.)

The imbalances also include huge and growing inequality between the income and wealth of the few at the top and the rest of us. It's a truism in economics that if too much money gets concentrated into the hands of a few, precious little is left over for broad-based consumption by the mass of people except by means of greater indebtedness. And, that's what has happened. People have simply borrowed through the home mortgage machine and using credit cards to maintain their standard of living. Now, they've reached the maximum and are shedding debt. Deleveraging is what the economists call it.

The most obvious and dramatic cracks in the system are on display in Europe right now as it careens toward yet another financial crisis, this time involving Spain. The International Monetary Fund has solicited and received pledges for more than $400 billion in additional funds to address the emerging crisis in Europe. Already, trillions of taxpayer dollars have been spent or lent (often on poor collateral) to stave of the departure from the Eurozone of states that can no longer prosper under it. Expect trillions more to follow, all to satisfy ill-tempered investors who somehow thought buying government bonds from the likes of Spain, Portugal, Italy, Ireland and Greece would be a risk-free venture.

As it turns out, those ill-tempered investors are mostly banks in more solvent Germany and France. The bailouts for Portugal, Ireland and Greece were really bailouts mostly for French and German banks. On the other hand, what is the point of having a system in which governments go to the private markets for loans if the banks they charter don't buy the bonds. Europe set up a system that was bound to fail. Germans export goods, lend money to Greeks, Italians, Spaniards and Portuguese to buy them, and fail to think about how these people are going to pay them back. Ditto France. The export model cannot be universally practiced. Somebody has to import stuff. It's a system that produces a kind of prosperity for all until it doesn't.

Now that that system is about the fall apart, preparations are being made. The European Investment Bank, the European Union's bank, is requiring currency clauses in loan agreements with firms in Greece, Ireland and Portugal, clauses that would force renegotiation of the loan terms should a new currency be issued by those countries. Insiders are convinced that there is a Plan B in European capitals for a Eurozone breakup and re-introduction of national currencies in some countries.

With a possible dissolution come new concerns about borders. France and Germany are about to broach the subject of reintroducing border controls in the European Union, something EU members have not had to deal with inside the EU territory since 1995. The excuse is that illegal immigrants are coming through porous places in the borders of such states as Greece. But it's no stretch to imagine that migration within the EU will become as big a problem when newly impoverished Greeks and Portuguese and soon-to-be impoverished Spaniards make their way to France and Germany looking for work.

In the United States economic distress has led to newly strident calls to build a fence from San Diego to Brownsville, Texas along the Mexican border. A world with free movement across borders when jobs are hard to find is no more appealing to Americans than it is to the French or the Germans.

When it comes to trade, even free trade's friends have suddenly turned surly. Republican presidential candidate Mitt Romney says he wants to "designate China a currency manipulator and impose countervailing duties." Some might say that he doesn't mean it. On the other hand, in another environment he would never have even said it. In France, facing possible defeat at the polls by a socialist, free-trading President Nicholas Sarkozy has taken to ringing the protectionist bell as well.

The decision by the people of Iceland not to burden themselves with paying back European depositors who got stung when Iceland's banks failed strikes me as a nascent withdrawal from the constraints of the current global system. Iceland's decision seems premised on the notion that the integrated global financial system has benefitted only those at the top of financial institutions at great cost to Iceland and the poor European depositors lured there by high interest rates.

Ireland is the counterexample. The government there insisted that the people of Ireland take on nearly all of the country's failed bank obligations (owned mostly by nonresidents) which were far out of proportion to the size of the Irish economy. Ireland's decision to bear such a burden in order to stay within the Eurozone my prove pointless if Spain follows Greece into default and contagion spreads across the continent breaking up the Eurozone anyway.

Everywhere the costs of integration are starting to outweigh the benefits for the broad mass of people. Partly this is the structure of such integration which is designed to benefit the wealthy at the expense of the middle class and the poor. Partly such integration is fighting the tide of constrained energy availability. It is no accident that doubts about global integration are surfacing as oil prices hover around $100 a barrel. Cheap transportation is the backbone of global integration, and cheap transportation is fast becoming history.

Of course, at the level of local activists, there is a smorgasbord of efforts to make local resilience a priority in food, transportation, housing, education and commerce. But, not every aspect of the global village needs to be jettisoned. Ironically, the Internet has proven to be a powerful tool for sharing ideas across wide expanses about disengaging from an untenable global system. As our economic and resource difficulties intensify, look for more people calling for changes that disengage their countries and communities from the worst aspects of the global system.

When people at the very top of society begin to call for a withdrawal from the global system, even if only a partial one, you can be sure that many of the brightest and most energetic people down below have already figured out the advantages of doing just that. This is not really a call for complete isolation--just a call for a return to relations that are genuinely reciprocal and consistent with the energy limits which will govern our lives from now on.

Kurt Cobb is the author of the peak-oil-themed thriller, Prelude, and a columnist for the Paris-based science news site Scitizen. His work has also been featured on Energy Bulletin, The Oil Drum, 321energy, Common Dreams, Le Monde Diplomatique, EV World, and many other sites. He maintains a blog called Resource Insights.